A credit card is a plastic card that gives you access to credit that you can use in a number of different ways, depending on the type of credit card you get. You’ll
have to repay at least some of what you borrow each month, however, you might
be able to avoid paying interest on your balance if you pay back in full and on
time.
How do
credit cards work?
If you’re
successful in applying for a credit card, your lender will set your credit
limit and an actual interest rate. This will reflect your own personal
finances, including your income and credit history. You’ll get the card in the
post, which you’ll need to activate before you can use it.
When you use
your credit card, you’ll build up a balance that you have to pay back. You need to pay back at least part of it every month. You can stick to making just the
minimum required monthly payment, which will let you avoid any late fees or
charges. However, this will mean you’re likely to pay more interest than you
would by paying in full.
Depending on
the type of card you have, you may also have to pay other fees for:
•Cash withdrawal
•Foreign use
•Exceeding your credit limit
•Balance transfers
•Money transfers
•Certain incentives or benefits
As you
continue to use your card and pay back what you owe, you’ll build up a good
history which can give you access to better interest rates and bigger loans in
the future. You may also be able to increase your credit limit if you’ve proven
to your lender that you can borrow money responsibly.
Should I
apply for a credit card?
As long as
you use your credit card sensibly it can be a useful financial tool, especially
in terms of planning for the future. However, submitting an application for a
credit card leaves a mark on your credit report – whether it’s successful or
not – and too many of these can put lenders off.
This is
because repeated credit or loan applications can make it seem as though you’re
in desperate need for credit, and lenders may feel you’re at risk of not being
able to pay all your debts.
You ought to
consequently set aside the effort to consider your application cautiously,
ensuring there are no mix-ups on the application or your credit record. To do
this you can contact credit reference organizations to check your own record
for any blunders.
It’s a good idea to do what you can to improve your credit score before applying for a new
line of credit, as this will give you a higher chance of being accepted.
MoneySuperMarket also offer an eligibility checker that lets you the know-how
likely you are to be accepted for different credit products, which can help you
pick and choose your applications.
What type of credit card should I get?
The type of credit card you’ll be best suited for will depend on why you want or need it.
For example:
If you
already have an existing debt
You may be
able to benefit from a balance transfer credit card if you have an existing balance
that you won't pay off quicker or with less interest. Many balance move cards go
with low or 0% interest periods That means you’ll be able to transfer your
existing debt onto the new card and pay it off at the new lower rate.
If you want
to build a credit history
Credit
builder credit cards can be useful for people with a poor or limited credit
history. It’s generally easier to qualify for as they are targeted towards
those who wouldn’t normally qualify for other credit cards.
These cards
generally, come with a higher interest rate and a lower credit limit, but if you
use them carefully and repay everything you owe in full and on time every
month:
•You’ll avoid paying interest on what
you owe, effectively making your credit card away to get an interest-free loan
•You’ll also build a level of trust
with your lender, therefore also building up your credit rating and making it
easier to qualify for better credit products in the future
If you want to use it on holiday
Most credit cards carry foreign
use charges, but you might consider an overseas credit card if you plan on
using one while you’re on holiday. these credit cards come without charges for
using them in a different country, meaning they can be a useful method to deal
with your vacation spending.
For example, using an overseas credit card can mean you don’t need to carry as much cash around with you, and
you don’t have to worry about running out of money while you’re abroad.
However, you should still be wary of exceeding your credit limit or making late
payments, as this will still result in a fee.
If you want to use your card for
purchases
Purchase credit cards often have
a 0% interest period in which you can pay for your shopping with your credit
card and avoid paying interest on what you owe, as long as you pay back in
time. They can be useful for spreading the cost of expensive items over some
month.
They also offer protection for
your purchases, thanks to Section 75 of the Consumer Credit Act. This holds
lenders equally as liable if something goes wrong with your purchase. For
example, if the company you bought from goes bust, or if your goods and
services don’t arrive.
If you want to earn rewards when
you use your card
Taking out a reward credit card
can give you access to a number of useful benefits and incentives as part of
your credit agreement. For example:
•A
shopping or store Mastercard can get you vouchers or in-store focuses for your
preferred shops as you utilize the card
•An an airline credit card can get you Airmiles that you can put towards flights as
well as access to airport lounges
•A a cashback credit card can give you cash every time you spend on the card
Be that as it may, these cards
can frequently charge an expense for access to these benefits, and on the of the chance that you miss any monthly installments you may lose the benefits through
and through.
If you want to use the card to
get cash in your bank account
A money transfer credit card
works in a similar way to a balance transfer credit card, but rather than using
your balance to transfer a debt you can transfer money into your current
account. These credit cards often come with low or 0% interest rates, which
essentially means you can use it as an interest-free loan to:
•Pay
off the overdraft in your current account
•Pay
off another loan at a lower interest rate
As with other low or 0% interest
credit cards you have to pay back at least the minimum amount each month or you
could be placed on the lender’s standard rate instead.
Compare credit cards
Whichever type of credit card you
want to apply for, if you compare deals on MoneySuperMarket it’ll be easier to
find the right card for you. All you need to do is tell us a little about your
finances, including details about your income and what you want to use your new
card for.
Then we’ll give you a tailored
list of credit cards which you can sort by interest rate, any fees, and charges,
and how likely it is that you’ll be accepted if you apply. This can help you
keep your credit intact as you can minimize the chance of being rejected and
therefore having to apply again in the near future.
Once you’ve found the card you
want, just click through to the provider to finalize your application – and be
sure to check there are no mistakes when you apply, or you’ll risk being
refused just because of admin issues.
If your lender accepts your
application, they’ll send you your card in the post along with your own credit
limit and interest rate. Remember the advertised APR only has to be offered to
51% - the actual rate you’ll be given will depend on your own personal
financial circumstances.
When you get your card, you’ll
just need to activate it and it’ll be ready to
0 Comments